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Founder's response to the sharp decline in the price of Terra, the third largest stable currency

2022-05-14 21:33:38Sina Finance blockchain

   The third largest stable currency in the world Terra USD Decoupling from the dollar on Monday , At one point the price fell to 69 Low cents , It led to a large number of investors selling their assets . Things got better on Tuesday , But early Wednesday Terra The price fell to 40 Less than cents , Caused widespread panic . In response to this crisis ,Terra founder Do Kwon Tweet that :“ To announce UST Your recovery plan . hold one's own .”

   according to the understanding of ,Terra Is an algorithm designed to maintain a one-to-one peg to the US dollar . And a stable currency backed by cash and assets to maintain value ( Such as Tether and USD Coin) Different , Algorithmic stability currency has no asset support , Instead, it maintains value through an arbitrage relationship with another cryptocurrency .

   With Terra For example , If the price is lower than 1 dollar , Traders can convert this currency into a currency called Luna The cryptocurrency of . Improve by reducing supply Terra The price of . contrary , If Terra Price over 1 dollar , Traders can put Luna To exchange for Terra, In order to make sure Terra And 1 Dollar peg .

   But this mechanism has not worked in the past few days . The algorithm relies on traders to push prices back 1 dollar , If traders are unwilling to buy , This currency will fall into “ Death vortex ”.

  Do Kwon Has been diversifying bitcoin reserves to support the value of stable coins , But if bitcoin depreciates as it has in the past six months , It may be difficult to provide protection for a stable currency .

   Tuesday local time , U.S. Treasury Secretary Yellen said at a hearing of the Senate Banking Committee , I hope Congress will authorize the supervision of the so-called stable currency . Yellen said :“Terra Experienced a round of decline . I think this shows that this is a fast-growing product , Risks are also growing rapidly . We really need a consistent federal legislative framework .”

editor : Zhang Jingdi

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